This was a very noob question. I had a hunt for documentation first, but could not find ant thorough documentation for writing tests (and libraries) from the POV of doing it for the first time.
I view that as my failure of searching! Next step: Ask. Where is this documented for the early part of the learning curve?
The difference being, --show-output will still capture the output, but it will show it after the testing and not as the tests run (in parallel). So it's nicer to read, but --nocapture may be more appropriate for tests with large amounts of output.
Side note, I didn't happen to know about --show-output myself, and it took a surprising amount of time for me to track it down. It's in the rustc docs, but not in the cargo docs.